On June 20th, 2024, the Supreme Court of the United States handed down the decision in the case of Moore v. United States. The court upheld the constitutionality of the Repatriation Tax on the grounds that it is entirely within Congress’ authority to tax shareholders on their realized but undistributed income of a foreign corporation. The court’s narrow decision avoided addressing the question concerning the 16th Amendment with respect to the taxation of unrealized income by declaring that the income had been realized by the company.
Tens of thousands of small- and medium-sized American business owners abroad have been negatively impacted by the Repatriation Tax, which was introduced in 2018. Unfortunately, those concerns were not addressed in this court case. U.S. persons living outside the U.S. and owning a business where they live found themselves retrospectively taxed without warning on income that was on the balance sheet of their corporation going all the way back to 1987. The Moores advanced a due-process argument in their 9th circuit appeal, but did not maintain those arguments this round. Although the decision of the Supreme Court did not expand to address due process surrounding the retroactive nature of the Repatriation Tax, it is important to note that the Majority raised the issue of due process in their opinions. This clear signal from the Court reminds that U.S. persons have the right to due process and basic fairness, and it should not take a Supreme Court decision for those rights to be upheld.
The decision also failed to address the manner in which the Repatriation Tax frustrates double taxation treaties. Not only does this create a disadvantage for American business owners abroad, it also signals to Congress that it can continue sidestepping international double taxation treaties without due regard to foreign taxes already paid on that income.
Democrats Abroad has been asking Congress for an exemption for small- and medium-sized American business owners abroad from both the Repatriation and GILTI taxes since the Tax Cuts and Jobs Act of 2017 passed. In May, our visit to Washington DC included conversations on an exemption for GILTI, given Congress will have to make changes to GILTI in next year’s must-pass tax bill. We have also previously conducted research specifically on the impact the Repatriation and GILTI taxes had on American business owners abroad in our 2021 survey and report as well as in our 2022 survey and report.
The difficulties that Americans abroad face with respect to U.S. citizenship-based taxation will only be resolved if we put our voices together. This starts with voting: we have a great opportunity for the voices of Americans abroad to be heard in the upcoming 2024 election. We strongly encourage all Americans abroad to request an absentee ballot at VoteFromAbroad.org and vote in all federal elections - President, House, and Senate. But voting is not enough. We need to write to Members of Congress about the impact the Repatriation and GILTI taxes have on American entrepreneurship abroad to raise awareness so that legislation can be passed to address these issues. Click here for more info on how to write to your Members of Congress.
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